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BlackRock Frontiers reflects on March performance with Indonesia, Egypt and Vietnam hit particularly hard

BlackRock Frontiers (BRFI)

In their capacity representing BRFI’s manager, Sam Vecht and Emily Fletcher, said: “The company’s NAV returned -25.6% (as at 31 March 2020) versus its benchmark the MSCI emerging ex selected countries + frontier markets + Saudi Arabia benchmark index  which returned -19.4% in March.  For reference, the MSCI emerging markets index ended the month -15.4% and MSCI frontier markets index -22.0% over the same period (all performance figures are on a US Dollar basis with net income reinvested).

March marked the global progression of covid-19, leaving a tragic death toll and resulted in societies around the world implementing social distancing policies. The overall impact on economies and markets remains uncertain.  At the same time the oil price plunged amid Russia/Saudi tensions and all risky assets sold off. Only US treasuries and US Dollar showed positive performance this month.

In response to the acceleration of the spread of the virus outside of China we had been de-risking the portfolio in February and early March as we did not think markets had moved to sufficiently price in the risk of a global recession. We reduced the net position of the company from 112% at the end of January to below 96% mid-March, before adding back some exposure mid-month. However, this was sadly insufficient to protect the company against the extent of market moves. 

There were positive contributors during the month. Chile was the largest contributor to returns in March driven by our position in pulp and paper company CMPC (+6.7%). Adding to low-cost Eastern European airline Wizz Air (+9.5%) during the month which is trading at very low valuations was another contributor to returns. Our holding in uranium producer Kazatoprom (+2.9%) also contributed.

A few countries were hit exceptionally hard during the month, notably Indonesia(-29%, Egypt (-27%) and Vietnam (-23%), whilst Saudi substantially outperformed, falling only 14%, despite the huge move in the oil price. The largest stock detractors from returns this month were our holdings in Indonesia particularly automotive company Astra International (-37.9%), retailer Mitra Adiperkasa (-48.2%) and real estate developer Pakuwon Jati(-48.9%). Our position in Vietnam also detracted driven by our holdings in retailer Mobile World (-45.7%) and mall operator Vincom retail (-33.9%). United Arab Emirates property stocks EMAAR development (-40.0%) and EMAAR properties (-36.6%) also detracted.

As markets sold off significantly, we have seen large scale fiscal responses approved across the developed markets as well as the very material provision of liquidity to the credit markets by the Federal Reserve. Broadly we believe that the world will get covid-19 under control; with virus cases peaking in Europe,  we believe support will be given to markets amid hope that other countries can follow. Many emerging and frontier markets have gone into this crisis in a much better position than previous crises with lower levels US dollar debt and with economies which were at fairly early points in their economic cycles and hence without significant growth in credit extension in recent years. We think that countries which have low levels of debt/GDP, benefit from a lower oil price with cheap currencies and will return to high levels of GDP growth and are in a relatively better position. As a result have moderately added to our positions in Indonesia and the Philippines.”

BRFI: BlackRock Frontiers reflects on March performance with Indonesia, Egypt and Vietnam hit particularly hard

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